This excerpt taken from the NDAQ 8-K filed Feb 20, 2008.
In December 2003, six purported trading firms sued the Exchange and other options exchanges, ROTs, and specialists in federal court in Chicago, alleging improper handling of options orders placed by these firms. The case was dismissed by order of the court on March 30, 2005, but plaintiffs were permitted to amend their complaint excluding antitrust allegations. Other similar situated plaintiffs filed similarly complaints against the Exchange, among others, on September 28, 2005 and September 30, 2005, respectively. All of these have been consolidated with this first case. Plaintiffs amended complaint (without antitrust claims), with allegations very similar to the original complaints, was dismissed on September 13, 2006 and their Motion for Reconsideration was denied on March 22, 2007. Plaintiffs now seek relief in the United States Court of Appeals which has not ruled on their request for an appeal. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
In 1998, a member of the Exchange, Joseph Carapico, and the entity through which he trades securities at the Exchange, filed suit against the Exchange in Pennsylvania Common Pleas Court. The suit was amended in 2003 to request the Court to appoint a custodian to conduct the business of the Exchange, direct defendants to provide immediate notice to members of the commencement of any exploratory talks regarding certain corporate transactions, declare whether any fundamental transaction that might be undertaken by the Exchange was lawful, and enjoin the Exchange from pursuing certain mergers, sales of assets, conversions, or other transfers. On October 6, 2004, the Court granted a summary judgment against the Plaintiffs and dismissed the case with prejudice. On February 24, 2006, the Superior Court affirmed the Summary Judgment against Mr. Carapico and his trading entity. On September 15, 2006, the Supreme Court of Pennsylvania denied Plaintiffs Petition for Allowance of Appeal, ending the litigation in favor of the Exchange.
PennMont Securities, a shareholder of the Exchange, filed suit on December 22, 2005 against five individuals: Meyer Frucher, the Exchanges Chairman and Chief Executive Officer; William Briggs, the Exchanges Executive Vice President; Norman Steisel, the Exchanges Executive Vice President and Chief Operating Officer; and Kevin Foley and Christopher Nagy, former members of the Exchanges Board of Governors. The Exchange is advancing defense expenses to the Defendants in accordance with its Restated Certificate of Incorporation and By-Laws. The complaint alleges mismanagement from the mid 1990s forward and alleges direct and derivative claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and nine common law causes of action. The complaint seeks monetary damages for plaintiffs and fellow shareholders. Defendants have filed a motion to dismiss the complaint on multiple grounds. The Court denied the motion to dismiss on October 4, 2006, but permitted the motion to be refiled with additional legal analysis and authority. The amended motion to dismiss was filed on October 30, 2006; a ruling is expected during the summer of 2007. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
William and Maureen Dooner, husband and wife, filed suit against the Exchange, among others, on May 28, 2004 in the Court of Common Pleas, Philadelphia County primarily alleging that the Exchange had provided negligent security on its trading floor which resulted in bodily injury and other harm to Mr. Dooner (and a loss of consortium for his wife). Mr. Dooner alleges that he was pulled to the ground, striking his head, by another trader in a trading crowd which action arose out of a disagreement over positioning within a trading crowd. On March 3, 2006, a jury awarded Mr. and Mrs. Dooner a total of $1,935,000 of which the Exchange was held liable for
$967,500 (50%). The Exchange has appealed this verdict, and oral argument on the appeal was held on March 6, 2007. Zurich North America has and will fully indemnify the Exchange.
Plaintiffs, Exchange shareholders, filed suit on June 14, 2006 in the United States District Court for the Eastern District of Pennsylvania, alleging securities fraud against the Exchange Defendants in connection with the six strategic investments secured by the Exchange in June and August 2005. The complaint also alleged fraudulent transfer of Exchange treasury stock against the Strategic Investors. Plaintiffs requested rescission of the sale of treasury stock to the Strategic Investors, or in the alternative, monetary damages. On July 19, 2006, Plaintiffs filed an amended complaint that expands upon the securities fraud claim asserted against the Exchange Defendants to attack not only the Strategic Transactions, but also demutualization and the Exchanges September 2005 stock buyback tender offer. Plaintiffs request: (i) rescission of stock sales pursuant to the tender offer; (ii) reversal of demutualization to the extent such is possible and, to the extent such is not possible, damages; and (iii) rescission of the stock issued to the Strategic Investors.
The amended complaint also newly asserts a claim for breach of fiduciary duty against the Exchange Defendants for which plaintiffs seek damages. With respect to the Strategic Investors, in addition to fraudulent transfer, the amended complaint asserts claims for securities fraud, commercial bribery pursuant to the Robinson-Patman Act, and aiding and abetting breach of fiduciary duty. The Exchanges motion to dismiss was granted on March 31, 2007. The plaintiffs have thirty days to appeal. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
A similar class action was filed against both the Exchange and the Strategic Investors in Delawares Court of Chancery on June 6, 2006. As in the above matter, Plaintiffs seek to unwind the strategic investments, and in the alternative, monetary damages. Legal costs associated with the defense of both class action matters will be covered by AIG Insurance. Motions to Dismiss filed on behalf of all defendants were denied on December 7, 2006. Discovery has commenced and a motion to certify the class has been filed. The Chancellor has scheduled a non-jury trial for June 18, 2007. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
PennMont, an Exchange shareholder, filed suit on April 19, 2006 in the United States District Court for the Eastern District of Pennsylvania, alleging insider trading in violation of the Securities Exchange Act of 1934 against Meyer S. Frucher, the Companys Chairman and Chief Executive Officer; John F. Wallace, the Companys On-Floor Vice Chairman; and Pasquale DiDonato, the principal of a floor broker at the Exchange. The complaints allegations concern the sale of 100 shares of the Exchanges Class A common stock from plaintiff to defendant DiDonato in January 2005. PennMont filed an amended complaint on August 4, 2006 that purports to state a controlling person claim against Wallace and hold him liable as a tipper, while it purports to state a direct securities fraud claim against Frucher. Defendants motion to dismiss the amended complaint was denied on March 23, 2007. Discovery has not commenced and no trial date has been set. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
On June 2, 2006, Nextrade, Inc., filed a claim against the Exchange in the United States District Court for the Middle District of Florida alleging patent infringement and breach of contract. The suit arises out of a licensing agreement between the Exchange and Nextrade signed in April of 2005 regarding an alleged patent for expirationless options. Plaintiff seeks unspecified damages,
costs and fees for infringement and breach, along with a declaratory judgment that NexTrades patent covers long dated options in addition to expirationless options. A motion to dismiss filed by the Exchange was denied in August of 2006, and discovery has commenced. A trial date has been set for March 3, 2008. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
On March 22, 2006, the Exchange was served with a complaint filed in the Court of Common Pleas of Philadelphia County by the owner of 200 shares of the Exchanges Class A Common Stock (the Shares) and by two prospective purchasers of those shares. The complaint alleges that the Exchange in 2005 wrongfully prevented the transfer of the Shares to their record owner, Steven Braverman, due to debts owed by Mr. Braverman to the Exchange thus depriving Mr. Braverman of a gain of $120,000 from an agreed upon sale to the two prospective purchasers in May 2005. The two prospective purchasers allege that they were wrongfully deprived of gains of $30,000 each, which they would have realized upon their acceptance of a tender offer made by the Exchange in October 2005. The Exchange reached a settlement with the two prospective purchasers in December of 2006, by allowing the transfer of shares with the proceeds being held in escrow pending the outcome of the litigation with Mr. Braverman. The Exchange filed an amended counterclaim and a motion for summary judgment in January of 2007. The case is scheduled for trial in August of 2007. The Exchange cannot determine the ultimate outcome of this matter as of December 31, 2006.
In 2003, the Commonwealth of Pennsylvania notified the Exchange that it is subject to the Pennsylvania Corporate Net Income (CNI) and Capital Stock/Franchise (CS/F) taxes beginning with the 1998 tax year. Prior to 2003, the Exchange had never filed or paid the above taxes as management believed that the Exchange was not subject to the above taxes due to the Exchanges not-for-profit status. The amount of the deficiency claimed by the Commonwealth as a result of the above taxes is $1,041,000 (including interest and penalties of $260,000). Management was in contact with officials of the Commonwealth of Pennsylvania regarding Pennsylvanias determination that the Exchange is subject to the above taxes. Management had determined that $780,000 was the maximum amount the Exchange would have to pay to the Commonwealth of Pennsylvania related to these taxes. The Exchange had $780,000 accrued on its books at December 31, 2003. The amount of $780,000, which excludes interest and penalties, was paid to the Commonwealth of Pennsylvania in 2004 pending the outcome of continued discussions with the Commonwealth. In August 2005, this issue was resolved in the Exchanges favor and the Commonwealth of Pennsylvania reimbursed the Exchange $992,000 representing CNI and CS/F taxes paid from 1998 through 2003.
In March 2004, the Exchange received a request for documents from the SECs Division of Enforcement related to a review of the Exchanges surveillance, investigation and enforcement functions from April 1999 through January 2002. This resulted in a settlement with the Division of Enforcement in May 2006 which included: (i) an order that the Exchange cease and desist from committing or causing any violations of Section 19(g) of the Securities and Exchange Act of 1934; (ii) an undertaking that the Exchange shall institute a training program for staff that addresses compliance with the federal securities laws and the Exchanges rules; and (iii) a further undertaking that the Exchange retain in 2006 and 2008 a third party auditor to conduct a comprehensive compliance audit and spend up to $500,000 in each of 2006 and 2008 on those audits.
PBOT has entered into a Letter of Intent (LOI) to which the Exchange is a third-party beneficiary, which contemplates the creation of a Joint Development Agreement (Agreement) amongst the parties to the LOI. This Agreement has not yet been consummated.
In August 2003, the Exchange entered into an exclusive license agreement with The Nasdaq Stock Market, Inc. (Nasdaq) for listing and trading options on the Nasdaq Composite Index which began on March 22, 2004. The initial term of the agreement is for three years. Under the agreement, the Exchange is responsible for paying a license fee per contract traded, but must pay Nasdaq a minimum of $1,250,000 during the 3 year term of the agreement. A member organization committed that they would cover any shortfall owed by the Exchange to Nasdaq. Pursuant to a termination and release notice, dated February 17, 2006, Nasdaq and the Exchange released each other from all obligations in this agreement and the Exchange agreed to pay Nasdaq $320,000 in final satisfaction. A member organization reimbursed the Exchange for such amount.
The Exchange has entered into employment agreements with certain employees. In addition to base salaries, the agreements provide for retention and, in part, incentive bonuses based on criteria established by the Board of Governors.
SCCP is a participant of NSCC and as such submits and guarantees activity of certain of the Exchanges members for clearance through the SCCP omnibus account. SCCP is entitled to all of the services and benefits of a participant of NSCC and is subject to all of the liabilities of a participant. The Exchange guarantees to NSCC all liabilities and/or obligations of SCCP to NSCC which now, or in the future may arise including liabilities and obligations which may arise from SCCPs membership in DTC.
In the normal course of its business, the Exchange is exposed to asserted and unasserted claims. In the opinion of management, the resolution of these matters will not have a material adverse affect on the Exchanges consolidated financial position, results of operations or cash flows.
This excerpt taken from the NDAQ 8-K filed Jan 27, 2006.
The Company has letter of credit agreements and guarantees totaling $263,737 and $250,104 as of December 31, 2004 and 2003, respectively, issued by commercial banking institutions on the Companys behalf to various non-U.S. securities clearing and regulatory agencies, as well as other corporate services and obligations. The Company pays an annual fee up to one percent of the value of the agreement.
As of December 31, 2004 and 2003, the Company had access to $200,000 of uncommitted credit lines from commercial banking institutions to meet the funding needs of our U.S. operations. These credit lines were collateralized by a combination of customer securities and our marketable securities. As of December 31, 2004 and 2003, there were no borrowings outstanding under these credit lines. The Company paid no annual fees to maintain these facilities. In addition, as of December 31, 2004 and 2003, the Company had access to $100,328 and $95,600, respectively, of uncommitted credit lines from commercial banking institutions to meet the funding needs of the Companys European and Asian subsidiaries.
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, requires the disclosure of representations and warranties which we enter into which may provide general indemnifications to others. In the normal course of business, the Company may enter into other legal contracts that contain a variety of representations and warranties that provide general indemnification to the contract counterparty. The Companys maximum exposure under these arrangements is unknown, as this would involve potential futures claims against the Company that have not yet occurred. However, based on the Companys experience, the Company does not expect these indemnifications will have a material adverse effect on our statements of operations, financial condition and cash flows.
This excerpt taken from the NDAQ 10-Q filed Nov 8, 2005.
In June 2005, Nasdaq completed the sale of the Key West building located in Rockville, Maryland to the NASD. This site was Nasdaqs disaster recovery site. See Related Party TransactionsSale of Building, of Note 3, Significant and Related Party Transactions, for further discussion. Effective September 2005, Nasdaq relocated its disaster recovery site to a third party outsource facility. Nasdaq and the third party provider executed a five-year agreement which commenced in September 2005 and requires a total minimum commitment of $3.2 million over the term of the agreement.
This excerpt taken from the NDAQ 10-Q filed Aug 9, 2005.
In June 2005, Nasdaq completed the sale of the Key West building located in Rockville, Maryland to the NASD. This site was Nasdaqs disaster recovery site. See Related Party Transactions Sale of Building, of Note 3, Significant Transactions, for further discussion. Effective September 2005, Nasdaq will relocate its disaster recovery site to a third party outsource facility. A cost effective 5-year agreement which commences in September 2005 and requires a total minimum commitment of $3.2 million was executed with the facility provider.